21 Sep 12 FDI in multi-brand retail is Heating up the Cold (Chain Sector)

Cold Chain – Part of the Infrastructure Sector

Ministry of Food Processing Industries announced India to be the second largest producer of fruits and vegetables in the world for the year 2010-11. But in the same year, post harvest losses and wastages were estimated to be in the range of 5.8% and 18%, which was to the tune of INR 44,000 crore per annum. This was the time when cold chain infrastructure was identified as a problem area and in the budget of 2011-12, it was considered to be a part of the infrastructure.

FDI in Cold Chain

The Government of India has permitted 100% FDI in the cold chain sector through the automatic route in the budget of 2011-12. It included other benefits like

  • Project import status at a concessional customs duty of 5% with full exemption from service tax for the initial setting up and expansion of cold storage, cold room (including farm pre-coolers for preservation or storage of agriculture and related sectors produce) and processing units
  • Full exemption from customs duty to refrigeration units required for the manufacture of refrigerated vans or trucks.

Cold Response

It was anticipated that this move would help in solving the cold chain infrastructure problem in India and consequently reduce the prices of perishable items. However, the industry hasn’t experienced the impact, as the FDI flow to this segment has been insignificant till now. This luke warm response is mainly due to the absence of front-end multi brand retailing, which has been shrouded with controversy.

Going Forward

But now that multi brand retail is on the verge of becoming a reality in India, it will create a lot of opportunities for warehousing; especially cold storage facilities. This is because there is a mandate of 50% investment in backend infrastructure which includes cold chain logistics and storage. Looking at the current demand supply gap, there will be huge opportunities for new entrants to penetrate the market. So far, very few international companies like Spire group, GE equipment services, Hiasen have entered the cold chain logistics. The future for cold storage seems bright in India and foreign companies can look at the following strategies while entering the Indian market:

Target niche areas: The current competition in rail operations is pretty one sided with Concor having a market share of 94% (in terms of volumes). In road transport, there are many small players in road transport like R.K. Foodland, Refcon Carriers, Indraprastha Cold Chain, Bulaki Deep Freeze, and Glacio Cold Chain, Snowman who are continuously improving their capabilities. International players can look at building their capabilities in the refrigerated road transport sector. In surface storage, majority of the players are concentrating on agricultural produce like fruits and vegetables. There lies a huge opportunity in specialized sectors like pharmaceuticals.

Engage in long term Investment: Cold chain infrastructure needs huge investment with a payback period of more than five years. The foreign players should look at investing in building infrastructure with a long term view in mind.

Use technology for gaining a competitive edge: Technology along with high service standards and process efficiency is what will give the foreign players an edge over the current competition in this industry. There is a huge demand for controlled atmosphere storage facilities for handling different types of fruits and vegetables at variant temperatures.

Partner with local distributors: Foreign players can enter the Indian market by identifying local partners, agents or distributors. For example, Haisen has signed an agreement with the Beta Empire Group and Pace CFS for a possible joint venture to establish cold chain logistics in India. The companies can also partner with other Indian retail giants as a 3PL as they are looking to invest billions in backward integration. This is evident from recent investment announcements by Bharti Group (about INR 2.5 million) and Reliance Industries’ retail venture (INR 25,000 crore) in cold chain facilities.

Although the recent move on allowing FDI for cold chain industry has received a cold response, we believe that the industry will grow significantly as multi brand retail is no longer a distant dream.  The foreign companies will vie for a share in this market. Cutting edge technology and right partnership will help the companies create a position for themselves in this market.

Sayli Vaidya

Sayli was a research analyst at ValueNotes, with a focus on healthcare and pharma.

  • Prakaash Jumaani
    Posted at 17:04h, 22 March Reply

    Unfortunately everybody is talking about only creating the cold chain infrastructure… nobody is talking about the crucial maintenance issues.. the main problem being acute shortage of competent labour to man and maintain the cold chain…HVRAC industry does not have the comparable glamour like say Telecom to attract capable people into the industry…everybody wants to live and work in the AC atmosphere but hardly anybody is willing to dirty his hands to maintain the AC…this is one main area that needs to be immediately addressed.. I made a successful mini reefer almost 2 decades back and went in for the manufacturing infrastructure also, but due to lack of competent labour situation, this was still borne..totally pro-labour government policies are a further damper..

  • Jagdish
    Posted at 08:33h, 14 March Reply

    it is a well written article.
    I have been active in the storage space for fruits and vegetables and have noticed the problems mentioned by you faced by the young entrepreneurs. these are capital intensive units and need long term vision.
    In India we are still focusing on the conventional methods and the new units are finding it difficult to change the mindset of the people. our company godwin foods limited has thus started investing in integrated units and are also doing research on prolonging shelf life of food products and have been successful so far. controlled atmosphere cold storage is also a specialized field and many players are competing for the same.

  • kunal
    Posted at 10:33h, 11 October Reply

    hello Ma’am,
    i have a cold storage and pre-cooling units which has a space of 150T..But i lack information n knowledge..plz help me.. can u mail me the list of fruits,veggi,canned food all product that can be store in cold storage even pharma product/raw material which r stored would be every helpful too. along with the prices they should be rented too kept in storage

    Posted at 06:01h, 28 September Reply

    Hi Sayli

    It’s an eye opener for existing entrepreneurs, who are neck to neck trying their best to upgrade themselves. All the best to them!! One thing is pricking me again and again. Why not incentivisation for small entrepreneurs/new entrants – who wish to enter Cold Chain?? This will certainly encourage New Entrants also.


    Vipin in the Q ready to play second inning.

  • Atul Kulkarni
    Posted at 04:24h, 28 September Reply

    Well written. You are absolutely bang on the problem that Cold Chain industry is facing. There is a need for attention towards this sector given the fact that the demand is likely to grow and distribution across our almost continent sized country is challenging.
    Congratulations once again.
    Ex CEO Chowgule Ports

Post A Comment

Show Buttons
Hide Buttons